Female-Run Venture Capital Funds Alter the Status Quo

SHIFTING TREND Theresia Gouw, left, and Jennifer Fonstad are co-founders of Aspect Ventures, one of a growing number of venture capital firms led by women.CreditCreditPeter DaSilva for The New York Times

Step into the offices on Sand Hill Road, the heart of Silicon Valley venture capital, and one thing is immediately striking — the almost all-male cast of leading characters.

But there is another corner of the venture capital industry that looks quite different. There, women run firms, and all-female networks of angel investors share deal opportunities and advise one another on investments.

This new group of firms and angel networks — including Cowboy Ventures, Aspect Ventures, Broadway Angels, Illuminate Ventures, Forerunner Ventures and Aligned Partners — stands in stark contrast to the rest of the industry.

In some ways, these new female-dominated firms and investment networks are a sign of success. There are now enough experienced, financially successful women to start their own firms, the way men with last names like Kleiner and Draper did in the past. In March, six women who are current or former Twitter executives announced #Angels, a new angel investing network.

In addition to having significant investing or operations experience, the women offer a broader and more diverse network for recruiting and finding new start-ups and an understanding of female consumers, who are often the dominant users of new products.

“We’re in the middle of a shifting trend where there are newly wealthy women putting their money to work, and similarly we’re starting to have a larger number of experienced investors,” said Jennifer Fonstad, a founder of Aspect Ventures and Broadway Angels, who was formerly a partner at Draper Fisher Jurvetson. “Venture women are going out and doing what we saw a lot of the guys do.”

But it is also a sign of the deep-seated problems in the venture capital industry. A recent gender-discrimination trial — in which Ellen Pao, a former junior partner at Kleiner Perkins Caufield & Byers, sued the firm — exposed elements of a male-dominated culture in which women are sorely underrepresented. Over all, just 6 percent of partners at venture capital firms are women, according to the Diana Project at Babson College. That is even lower than in 1999, when 10 percent were female. And, according to another study of gender and venture capital, 77 percent of the firms have never had a female investor.

That study, by Paul A. Gompers, a professor of business administration at Harvard Business School, found that a lack of inclusion and mentorship by male partners hurts female partners in a material way, by driving down their overall returns.

“What’s clear from these results is that investment returns are not only related to your own track record, but to having good colleagues around you,” said Professor Gompers, who was a paid witness for the defense in the discrimination trial, which Ms. Pao lost. “And the surprising thing is, on average, women aren’t benefiting from their male colleagues.”

Venture capitalists are, in a way, the gatekeepers to Silicon Valley, and if they are a group of white men who studied at places like Stanford, it is no wonder that most of the entrepreneurs fit the same mold. Venture firms with women as partners are three times as likely to invest in a company with a female chief executive and twice as likely to invest in one with women on the management team, according to the Babson College report.

The lack of female investors has cascading effects. Start-ups’ boards are composed mostly of venture capitalists, so they are often all men. A recent Fortune analysis found that of the 81 start-ups worth more than $1 billion, 5 percent had a female chief executive and 6 percent had a woman on the board. Other studies have found that male founders and directors are less likely to hire women as executives and engineers, or pay men and women equally.

“Honestly, there will be more female entrepreneurs if there are more female venture capitalists,” said Brit Morin, founder and chief executive of an e-commerce and crafts site called Brit & Co, whose investors include Cowboy Ventures.

Female investors said they did not specifically seek to invest in companies founded by women, but that because of their networks, they received more pitches from female entrepreneurs. Forty percent of the angel investments made by Sonja Hoel Perkins, a founder of Broadway Angels (not related to Tom Perkins, the co-founder of Kleiner Perkins), have been in companies started by women, a far greater proportion than are made by typical venture funds. That is also the case with a third of Cowboy Ventures’ 30 investments, and more than 40 percent of Aspect Ventures’ 13 investments.

“We are getting a first look at an unfair share of these amazing, oftentimes repeat entrepreneurs, who happen to be female,” said Theresia Gouw, a founder of Aspect and a former partner at Accel. Since more than half of the users of many mobile and social services are women, she added, companies can benefit from having female investors evaluate their products and serve on their boards.

That has been true for Mariam Naficy, the founder and chief executive of Minted, a crowdsourced marketplace for stationery and art that has raised $89 million. Early in her company’s life, before there was data to prove that her idea was a good one, female investors were much more likely than men to understand it, she said.

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Forty percent of the angel investments made by Sonja Hoel Perkins have been in companies started by other women.CreditPeter DaSilva for The New York Times

“Without being able to see quantitative evidence of better design, most male investors couldn’t allow themselves to make the leap,” Ms. Naficy said. “To virtually every female investor I met with, it was clear Minted’s community was producing far fresher and more unique design than our competitors.”

That seems to be paying off for Ms. Perkins, who was an early investor in Minted and said it is on track to being worth $1 billion.

Not that female venture capitalists invest only in companies with predominantly female customers. “There’s a myth out there that women only know how to invest in women’s products,” said Cindy Padnos, founder of Illuminate Ventures. She invests in cloud and mobile services for businesses.

“Women say, ‘If there were more women founders, I would invest in more of them,’ ” she said. “That’s too easy an excuse. You have to go out of your way to identify them and be receptive and show them this is a place where women and men succeed.”

Many of the women who have started the new firms said they did it because after spending so much time with entrepreneurs, they wanted to create their own start-ups. Because many traditional venture funds have ballooned and expanded to late-stage and international companies, there was a need for new, smaller investors who were focused on financing early-stage companies.

“We are in a valley of people who challenge the status quo, so it sort of seems natural that we have venture investors who are thinking about how to do things differently,” said Aileen Lee, founder of Cowboy Ventures and a former partner at Kleiner Perkins.

But most of all, Ms. Perkins said, working with women seemed fun. “All of us thought it would be great to be only women because all of us had worked with only men our whole lives,” she said.

“I also thought it would be inspiring for women and girls to get into venture capital and technology,” she added, “because I think a lot of women think, ‘Why be in venture capital if you perceive the industry as not being friendly toward you?’ ”

Correction:

An earlier version of a picture caption that appeared on the home page, referring to this article, reversed the names of the two founders of Aspect Ventures. Jennifer Fonstad was on the left and Theresia Gouw on the right. (They are correctly identified in a photograph with the article.)

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